INVESTMENT HIGHLIGHTS

• 1HFY17 earnings within expectations

• Topline supported by newly acquired assets

• Earnings forecast maintained

• Maintain BUY with unchanged TP of RM1.15

1HFY17 earnings within expectations. AmanahRaya REIT (ARREIT) 1HFY17 core net income of RM16.54m came in within expectation, making up 46% of our full year estimates. Comparison to consensus estimate is unavailable. ARREIT announced distribution per unit (DPU) of 1.34sen for 2QFY17, bringing total DPU to 2.76sen for 1HFY17.

Topline supported by newly acquired assets. 1HFY17 topline increased by 5.8%yoy to RM30.3m, driven by earnings contribution from newly acquired assets namely Deluge Factory in Johor, Toshiba TEC in Bandar Glenmarie, and Contraves Building in Cyberjaya. Nevertheless, 1HFY17 core net income declined by 10%yoy to RM16.54m, mainly due to higher property operating expenses and higher manager’s fees. Total property expenses increased 65%yoy, mainly owing to higher repair and maintenance expenses in 2QFY17. Nevertheless, we expect property expenses to normalise in 2HFY17.

Earnings forecast maintained. We make no changes to our earnings forecast for FY17/18. We forecast FY18 earnings to climb 7.5%yoy mainly driven by lease renewal of SEGi University in Kota Damansara which is its top rental contributor. Rental reversion for the property is expected to be resilient at +5%.

Maintain BUY with unchanged TP of RM1.15. Our TP is based on DDM model (required rate of return: 7.7%, terminal growth rate: 1%). We maintain our BUY recommendation on ARREIT for its diversified assets base with exposure to education property. Dividend yield of ARREIT is also attractive at 5.8%.

Source: MIDF Research - 30 Aug 2017